Life insurance is the only financial tool that offers the triple advantage of risk coverage, long-term savings and tax benefit. It offers financial protection to an individual after taking into account the present and future value of his assets and liabilities. However, while the awareness and acceptance of insurance in India is growing, consumers need to develop a better understanding of the products they buy.
There are a number of things that each of your life insurance policies should spell out and include, and the policy document is a complete guide to exactly what your insurance contract covers. This is why it is always important to check a policy very carefully when you first receive it, to make sure that everything you requested is written down in the policy. Mentioned below are five key parameters to weigh once you received the policy documents.
Verify personal details
Personal data provided to the insurance company forms a very important part for settlement of all claims. Make sure that all personal details, such as your name, age, etc., are mentioned correctly and also that all aspects related to personal habits or health details are mentioned correctly and honestly. In cases where it is not declared or is erroneous on policy documents, the insurer may refuse to honour the claim.
Analyse the benefits
The benefits of your life insurance policy must correspond with your long-term goals. Go through the features of the product and check if they match with promises made during the purchase. Cross-check features, such as sum assured, premium amount, flexibility of the plan, etc. Your insurance plan may also come with more evolved features, such as dynamic fund allocation or increasing premium to beat inflation, which need to be understood.
Check the riders
In addition to life coverage, you may have purchased a few add-on covers known as riders. Go through the insurance contract to ensure that riders you bought are included in it.
Knowing the exact payment tenure will help ensure that you achieve the goals for the reason you bought the policy. Check for how long you need to pay premiums and also what mode of payment you may have chosen, for example half yearly, quarterly etc. The basis of most mis-selling is the premium payment tenure. Do not fall for the “you need to pay for only 3-5 years” line. Life insurance is a long-term savings and protection tool and its benefits can be seen only if one buys it for the long term.
Authenticate the returns
Do not blindly believe the returns promised. Once you get the policy documents, check out the benefit illustrations of returns. Study carefully what is guaranteed and what is not. Incidentally, in the last decade, the gross investment yield of the ‘controlled funds’ of traditional endowment plans is a 8%. During the last 5-7 years, balanced and equity oriented Ulip funds have yielded 8% to 12% while less volatile conservative and debt-oriented Ulip funds have yielded 6-10% gross returns. The illustration shows what would be your illustrative benefits in a hypothetical situation if your investment were to provide a gross return of 4% and 8%, as per the Irda’s mandate.
By Rajesh Sud
The writer is MD & CEO, Max Life Insurance